2 proposals to take over Minibond notes, says MAS; DBS, Hong Leong and Maybank offer to compensate 'vulnerable' investors
By SIOW LI SEN
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(SINGAPORE) The gloom surrounding Lehman-linked structured products is starting to lift a little.
On the one hand, three different financial institutions came forward yesterday with the promise that they would soon start compensating 'vulnerable' investors who had parked their funds in Minibonds and DBS High Notes. In some cases, the compensation would start as early as today and some investors might receive it in full.
The assurances came last night from DBS in connection with its High Notes as well as Hong Leong Finance and Maybank over Minibonds. DBS said its compensation in Singapore and Hong Kong could touch $70-$80 million.
Meanwhile, rescue is also at hand for the rest of some 8,000 Minibond investors. Two financial institutions have come forward and are bidding to take over the notes so that they can run until maturity. The Monetary Authority of Singapore (MAS) wants these institutions to offer investors an exit option as well.
MAS said last night that an independent financial adviser is expected to be appointed within a week and the adviser should be able to advise investors on the proposals to take over the Minibond notes.
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Both proposals to take over the notes are from international financial institutions licensed by MAS to operate in Singapore, it said. The proposals are confidential at this stage, and the details are being finalised.
Once the proposals are finalised, HSBC Institutional Trust Services, the trustee for the Lehman Minibond Programme, will inform all note-holders at the earliest appropriate time.
MAS said it has told the two financial institutions and the trustee 'that any commercially viable proposal should also provide an exit option for investors who do not wish to remain invested in the notes'.
Any proposal has to be voted in by at least 75 per cent of the note-holders which will be cast at an extraordinary general meeting, and confirmed by the court.
Investors bought Minibonds arranged by Lehman Brothers worth $508 million over the last two years, of which $375 million was sold to about 8,000 retail investors through nine distributors.
Another 1,400 investors bought DBS' High Notes 5 which is linked to Lehman Brothers.
Many investors were retirees who poured the bulk of their hard-earned savings into these notes attracted by their quarterly interest or coupon payments which paid as much as 5 per cent against miserly fixed deposit rates of sub-1 per cent.
When Lehman Brothers went bankrupt last month, investors were left high and dry and there have been emotional scenes of retirees crying, stunned by their sudden descent into potential destitution.
Many received a large dose of hope last night.
Hong Leong Finance said it will compensate in full vulnerable Minibond investors who were 62 years or older at the time of investment and had only a primary school education. Sixty-two is the government's official retirement age.
Maybank also said it will compensate in full vulnerable Minibond investors but did not disclose details, while DBS Bank too said it will begin to compensate today those customers it had mis-sold its High Notes 5 notes.
Hong Leong Finance, which has 28 branches mainly in the heartlands, said 'in exchange for the customer's Minibond programme notes and without any admission of liability, the company will offer, in full and final settlement, payment of the original investment amount net of all interest paid to date'.
The offer is not expected to have a material adverse effect on the company's results for the current financial year.
A source said the number of cases do not run in the hundreds.
Hong Leong Finance spokesman Gerry de Silva said as for the rest of Minibond investors, the company will continue to review and deal with them in a fair and equitable manner, and as expeditiously as possible.
Priscilla Loke, Maybank spokeswoman, said investors have the option to take compensation from the bank or continue holding the notes until maturity with whoever takes over from Lehman.
DBS, meanwhile, said last night that its High Notes 5 were sold to 4,700 customers in Singapore and Hong Kong who invested a total of $360 million.
Of these customers, two-thirds are from DBS Treasures which caters to customers with a minimum of $200,000 cash and/or investments, and 80 per cent are below age 60.
'As a matter of policy, we do not discuss individual cases. However, to-date we have found that a number of cases did not meet the standards DBS upholds and the bank will be compensating these customers with effect from tomorrow. Based on the number of cases we've reviewed, we estimate that the total customer compensation in Singapore and Hong Kong will be in the range of S$70-$80 million.'
DBS added that the unwinding process of the products is currently underway.
'Regrettably, our initial expectation of the worst-case scenario whereby investors will lose their entire principal investment amount is likely to materialise. DBS will not gain from this process and the bank will make a final announcement next week when the final credit redemption amount, based on prevailing market conditions, is determined.'
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